Contracts 4: Contract Terms

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What does the PAROL EVIDENCE RULE do?

keeps out evidence of a prior OR contemporaneous agreement (either oral OR written) that CONTRADICTS a LATER writing.

POLICY: give primacy to a later writing

What are the EXCEPTIONS to the PAROL EVIDENCE RULE?

To correct a CLERICAL ERROR: e.g., a typo

To establish a defense against FORMATION: evidence that there was a flaw in the agreement process always gets in

To interpret a VAGUE or AMBIGUOUS term: however, courts give words their plain meaning

To supplement a PARTIALLY-INTEGRATED writing: applies when there is a final statement of the terms included, but not a COMPLETE statement of all the terms agreed to. However, this argument fails if there is a MERGER CLAUSE.

What is a MERGER CLAUSE?

It is a clause that states that the writing is complete and therefore cannot be supplemented:

"This contract is limited to the terms herein..."

Under Article 2, only the Merger Clause will keep praol evidence out.

Does the PAROL EVIDENCE RULE prohibit one party's oral promise made additionally after the agreement has been duly written?

NO--the parol evidence rule looks only backwards.

However, there may still be a contract modification problem or statute of frauds problem.

What THREE types of conduct can be used to explain terms or fill in gaps in the agreement? (in order of descending importance)

Course of PERFORMANCE: what the parties did under THIS contract

Course of DEALING: what the parties did under PRIOR contracts with EACH OTHER

Usage of TRADE: what OTHERS in the trade do in SIMILAR contracts

What are seller's warranties of quality in an Article 2 sale of good?

Any express warranties

Implied warranty of merchantability

Implied warranty of fitness for a particular purpose

Is an Article 2 seller is liable for breach of an EXPRESS warranty?

YES, if the warranty was a BASIS OF THE BARGAIN (buyer could haverelied on the express warranty)

What are FOUR examples of Article 2 EXPRESS warranties? What is NOT an express warranty?

Statements of fact

Promises

Descriptions of the goods

Use of a sample or model

NOT an express warranty: OPINION

What is the IMPLIED WARRANTY OF MERCHANTABILITY?

A warranty that the goods are FIT for their ORDINARY purpose.

Who is held to the implied warranty of merchantability?

A seller who is a MERCHANT who deals in goods of the kind (i.e., a dealer, who has SPECIALIZED knowledge about the particular goods involved in the transaction)

What is the IMPLIED WARRANTY OF FITNESS for a PARTICULAR purpose?

A warranty that the goods are fit for the BUYER'S PARTICULAR purpose

What is required for there to be a implied warranty of fitness for a particular purpose?

seller knows buyer has a SPECIAL USE for the goods and is RELYING on seller to pick out goods SUITABLE for that use

Who may be held liable for an implied warranty of fitness for a particular purpose?

ANY seller (not just merchants)

What are lessor's warranties in a lease of goods (article 2A)?

Same warranties under Article 2.

EXCEPTION: FINANCIAL LEASE (a bank that leases is not held to have made warranties)

What are TWO limitations on warranty liability in sales and leases of GOODS?

Disclaimers: seller can disclaim IMPLIED (but not express) warranties

Limitation of buyer's remedies

Does a contract stating that all goods are "as is" or "with all faults" eliminate ALL implied warranties? What results when the contract does not use those "magic" phrases?

YES

Without those phrases, the disclaimer must be CONSPICUOUS and draw the attention of the REASONABLE buyer. Also, if seller wishes to disclaim the implied warranty of merchantability, he must use the word "merchantability."

What is the rule for the seller's ability to limit buyer's remedies? Any exceptions?

Sellter can limit buyer's remedies for breach of ANY warranty if the limitation is NOT UNCONSCIONABLE.

NOTE: limiting buyer's remedies for PERSONAL INJURY in the case of CONSUMER GOODS is PRESUMED UNCONSCIONABLE.

What happens is a limited remedy "fails of its essential purpose"?

The remedy provisions of Article 2 apply.

In an Article 2 Sale of Goods, how do you determine who bears the RISK OF LOSS?

Look at the following factors in the order listed:

- AGREEMENT (controlling)

- BREACH (breaching party bears ROL, even if loss is UNRELATED to breach)

- Delivery by COMMON CARRIER (ROL shifts to BUYER when seller completes its delivery obligations)

When does the seller complete is delivery obligations in an Article 2 Sale of Goods contract for determining Risk of Loss purposes?

SHIPMENT contract: seller must get the goods to a common carrier, make delivery arrangements, and notify buyer

DESTINATION contract: seller must get the goods to a specific destination (usually, where the buyer is located)

What is delivery "FOB"?

Delivery "FREE ON BOARD" is followed by the name of a city or place. Risk of loss passes to the buyer at the NAMED location.

If the location is where SELLER is located, this is a SHIPMENT contract.

If it's anywhere else, this is a DESTINATION contract.

In an Article 2 Sale of Goods contract, who bears the risk of loss in a NON-CARRIER case?

If the seller is a MERCHANT: Seller bears risk of loss under buyer takes POSSESSION of the goods

If the seller is a NON-MERCHANT: Risk of loss passes to buyer once seller makes the goods available to the buyer

In an Article 2A (lease of goods) contract, who bears the risk of loss?